Smarter Commerce: Transforming for a Customer Centric World

In this paper, we first look at how and why technology trends are radically transforming customer expectations and the commerce cycle. Second, we examine what this sea change means for businesses, and how companies
Smarter Commerce: Transforming for a Customer-Centric World
need to adapt their mind-sets and operations to create a more virtuous customer experience cycle. Finally, we provide an overview of IBM’s Smarter Commerce initiative, focusing on its solutions to help midsize companies
market and sell. Throughout the paper, we reference specific examples of midsize companies that are using
Smarter Commerce solutions today to more easily determine and deliver what customers really want—
through more effective customer interactions, better information and insights, and improved processes.

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Smarter Commerce: Transforming for a Customer-Centric WorldSMARTER COMMERCE: TRANSFORMING FOR A CUSTOMER-CENTRICWORLDKEY HIGHLIGHTS  Social, mobile and cloud computing innovations have radically and irreversibly changed customer expectations throughout the commerce cycle—shifting the balance of power to the buyer.  New dynamics necessitate that midsize businesses transform their culture and operations for a customer-centric world.  To make this shift, companies need to integrate and analyze data across customer touch points, provide customers with a more consistent experience across channels, and have actionable metrics to continually refine and improve the customer experience.  A more holistic, connected approach helps companies increase marketing effectiveness, improve operational agility and increase relevance for the customer.  IBM’s portfolio of Smarter Commerce solutions, experience, Business Partner network, cloud delivery and financing options can provide midsize companies with affordable, accessible solutions and the guidance required to get the most from them.Technology trends are converging to create a perfect storm in the world of commerce—one that empowerscustomers and raises the bar for companies of all sizes to meet new, more demanding customer expectations.Social media empowers customers with information from friends and other unfiltered sources. Mobile devices,applications and payments make it possible to research and shop for products and services anytime andanywhere. Cloud computing and ecommerce are blurring the boundaries between brick-and-mortar andonline commerce sites.As a result, customers expect more from businesses throughout all phases of the commerce cycle. They wantanywhere, anytime, any-device access to multiple sources for information gathering, product and serviceevaluation, selection, purchasing and customer service. For businesses, the trick to surviving and thriving inthis brave new world is having the ability to anticipate what the customer wants, automate and personalizecustomer interactions, and enable the customer to do business where, when and how he or she wants.IBM has developed its Smarter Commerce portfolio to help companies put the customer at the heart of thecommerce cycle. These solutions and services delivered by IBM and its Business Partners take advantage ofcloud, mobile and social technologies. They can help midsize companies build the foundation needed todeliver a consistent, more responsive customer experience across channels.In this paper, we first look at how and why technology trends are radically transforming customer expectationsand the commerce cycle. Second, we examine what this sea change means for businesses, and how companies 2 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric Worldneed to adapt their mind-sets and operations to create a more virtuous customer experience cycle. Finally, weprovide an overview of IBM’s Smarter Commerce initiative, focusing on its solutions to help midsize companiesmarket and sell. Throughout the paper, we reference specific examples of midsize companies that are usingSmarter Commerce solutions today to more easily determine and deliver what customers really want—through more effective customer interactions, better information and insights, and improved processes.SECTION 1: THE SMARTER CUSTOMER—REDEFINING VALUE IN THE SOCIAL WEBThe ways people and businesses buy products and services have radically and irreversibly changed over thelast few years. Rapid adoption of mobile and cloud technologies as well as the rise of social media have turnedthe commerce process upside down (Figure 1).Figure 1: Technology Trends Are Converging to Radically Alter the Commerce ProcessSource: SMB Group and IBM 3 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric WorldSocial networks have become collaborative platforms—and a strong influence on how people perceive and buyproducts and services. The world has moved from one-way, brand-centric marketing and static web pages totwo-way, interactive conversations that empower customers with more information and choices.“Social shopping” was originally pioneered by Amazon.com, which has offered customers reviews andsuggestions for years. But social shopping is spreading its wings well beyond Amazon. Facebook’s “Like” buttonmakes it easy for anyone to share opinions with friends, and many new apps are also fueling this phenomenon.For example, Shwowp lets users track and share their shopping history; Kaboodle and ThisNext provide socialshopping communities for people to recommend and discover new things; and ShopTogether provides asynchronized online shopping experience with friends, simulating a joint trip to the mall.The rising adoption of mobile devices is facilitating this trend. The Mobile Marketing Association estimates thatthere are 6.8 billion people on the planet—and 5.1 billion of them own a cell phone, but only 4.2 billion own atoothbrush! Using the phone in their pocket, buyers can access price comparisons, reviews, ratings and otherinformation online throughout the commerce process.To understand just how revolutionary this shift is, consider these statistics: Shift to online sales. 32 million people (66% of all adults) in Great Britain purchased goods or services over the Internet in 2011 (Office for National Statistics, August 2011). This was an increase from 62% in 2010. Rise of social media. In 2011, 65% of adults used a social networking site like Facebook or LinkedIn—up from 5% in February 2005 (Pew Internet & American Life Project). During the 2011 holiday season, the number of discussions on social media sites leading up to Black Friday 2011 increased by 110% compared to 2010. Key topics included price comparison tips, out-of-stock issues, waiting times and parking (IBM Coremetrics Benchmark). Explosion of mobile devices. Smartphone sales surged past PC totals for the first time in the fourth quarter of 2011 (Canalys). And people are using those devices to purchase goods and services: Worldwide mobile payment volume is predicted to total $86.1 billion, up 75.9% from a 2010 volume of $48.9 billion (Gartner Inc.; Market Trends: Mobile Payments Worldwide, 2011). Growing avalanche of information. We have officially entered the age of the zettabyte (with 21 zeroes after the “1”). Next year, the volume of digital content will rise 48 percent, to 2.7 zettabytes (IDC).In the retail industry, for example, think about how easy it is to go to a physical retail store to touch and feel aproduct, and then comparison shop for the same item and order it for less online via a smartphone. Orconsider how quickly customers can share a negative experience—poor service, out-of-stock items, long linesor endless phone tag—with others. 4 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric WorldWhether you are a bank, wholesale distributor, manufacturer, retailer or any other customer-orientedorganization, the bottom line is that customers’ expectations are rising. People increasingly expect anywhere,anytime, any-device access to multiple sources of information throughout the commerce cycle, frominformation gathering, evaluation and selection, to purchase and service. This mandates that vendorsunderstand and implement new solutions and metrics to attract, interact with, acquire and retain customers.SECTION 2: SMARTER COMMERCE—TRANSFORMING FOR A CUSTOMER-CENTRICWORLDTo delve further into how rapidly and dramatically social/mobile technologies are driving changes in customerbehavior and activities, let’s look more closely at the sea change that happened on Christmas Day 2011:  Total online sales for December 25 grew by 16.4% compared to the same date last year (IBM Coremetrics Benchmark).  Digital content and subscriptions (digital downloads of music, TV, movies, ebooks and apps) accounted for more than 20% of sales—likely in part due to the gifting of millions of new devices. On any other day of the holiday season, that number was only 2.8% (comScore).  The iPad accounted for 7% of all online sales on Christmas Day, accounting for 50% of all mobile sales that day (IBM Coremetrics Benchmark).  Record eBook downloads for Amazon helped the company realize a 175% increase between Black Friday and Christmas Day compared to the previous year (PCWorld). Furthermore, at the Digital Book World Conference in New York, publishers predicted that worldwide sales of ebooks will reach parity with print books beginning in 2014.  In the United Kingdom, there were 45.5 million visits to online retailers on Christmas Eve, and 62.8 million visits on Christmas Day, representing a 38% increase in a single day (Hitwise).Traditionally, Christmas is a day spent alongside family and friends, and away from commerce, with storesclosed in recognition of the holiday. But now, technology lets people do what they weren’t able to do in yearspast: shop any day of the year—even on holidays—from the convenience of their preferred device. As thenumbers above illustrate, customers have taken advantage of what today’s technologies—and companiesusing a Smarter Commerce approach—offer them.The iPad underscores this astounding shift: 7% of all 2011 online sales were made on an iPad, a device thatwasn’t even around two years ago. With the highest estimates for total iPad sales in the 40- to 50-million-unitrange as of the end of 2011, the iPad accounts for just a tiny fraction of all devices (desktops, laptops, mobilephones, other tablets, etc.), making the number even more remarkable.However, even as customers’ behavior and expectations change, one thing that hasn’t changed is their corephilosophies. Customers have always wanted companies to listen to them and to act on the input they provide. 5 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric WorldThey want companies to value their time and their recommendations as well as their money. But, as the datapoints we’ve discussed clearly indicate, customers are changing their behavior and activities as they embracesocial and mobile technologies, using new devices and applications to do what they’ve wanted to do all alongmore easily. As technology enables customers to get better access to information, people, products andservices, it also gives them more control over the commerce process.So although customers’ core philosophies are holding steady, companies need to change their philosophicalapproach to meet new expectations and align with changing behavior. Having a Facebook page or a mobile appwill not be enough. Smarter companies will fully engage customers across multiple channels—not only formarketing and branding, but also to bring the voice of the customer into the company. By analyzing socialmedia, web and transactional data, companies can get the insights they need to create exceptional customerexperiences to set them apart in the market.Speedo® International illustrates this type of shift in philosophy andapproach. According to Gareth Beer, ecommerce manager for Speedo “The goal is to have consistency andInternational, “We wanted to really understand the customer, how they “The goalacross these channels and visibility is to have consistency andbehave, how they think and how they liked to be interacted with. The visibility across these channels and heighten our understanding of thebusiness is all about the customer. We need to be in as many channels as heighten our understanding of the customer.”customers are in and align them as closely as we can—whether the customer.” — Gareth Beer, ecommerce manager,customer is on a smart phone, iPad or in a brick and mortar store.” — Gareth Beer, ecommerce manager, Speedo International Speedo InternationalTo gain deeper insight into how effectively it engages customers andprospects on its site, Speedo integrated IBM Coremetrics® andIBM WebSphere® Commerce to more accurately:• Track KPIs for sales, orders, visitors, stock and margins, and its consumer index score, which rates customer experience with Speedo.• Gauge the effectiveness of pay-per-click campaigns and retargeting efforts.• Set and meet service-level agreements to pick, pack and dispatch orders.Understanding today’s customer calls for a new mind-set, one in which businesses understand how customerbehavior and expectations are changing. By developing processes and using solutions to better anticipate andrespond to market shifts, companies can create the product, sales and service experiences needed to not onlyconvert prospects into customers, but also turn more customers into brand advocates.SECTION 3: CREATING A VIRTUOUS CUSTOMER EXPERIENCE CYCLEDelivering the experiences customers and prospects expect begins with listening, and continues with providingproducts and services that align with customers’ verbal and behavioral feedback. Using the channels, formatsand technologies that customers and prospects want to engage with is also crucial to develop, extend andenhance customer intimacy and loyalty. The process of delivering exceptional customer experiences starts 6 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric Worldwhen organizations adapt their culture and processes to meet heightened and changing customerexpectations, and is enabled by applying the right technology solutions.But engaging customers and then capturing and making sense of the mounting avalanche of customerinformation from social, digital and transactional channels isn’t easy. And providing employees throughout theorganization with the tools and access to information they need—when they need it—becomes morechallenging every day as more data is created.Having the right tools and processes in place to listen to, analyze information from, and effectively engage withcustomers and prospects is no longer a luxury but a necessity. As more people participate in social networksand share more information, more data about them is created. Coupling this unstructured data with traditionalinformation (transactional data, activity data, service data, etc.) can bring companies closer to a 360-degreeview of the customer. By integrating and analyzing this information, companies can turn disparate pieces ofdata into important insights they can act on to improve the customer experience.This desire is driving many midsize organizations to adopt a new approach,according to Paul Ernst, president of RiverPoint Solutions Group, LLC, anIBM Advanced PartnerWorld Member. According to Ernst, “Using a “A company might have done 100platform like IBM’s Unica® marketing suite can provide a 360 degree view marketing campaigns last year, and sentof all your marketing touch points. It also lowers technological complexity out 50,000 messages for each campaign.by removing the need to integrate multiple disparate point solutions for Using Unica, that company can do two oremail marketing, web analytics, and other key marketing applications by three times as many campaigns in theproviding a single platform. This more holistic, connected approach can same time period, with much finerhelp companies increase the relevance/effectiveness of corporate targeting and messaging. Because eachmarketing messages, improve marketing agility, and increase the number campaign is more relevant to theof campaigns executed—all without having to add more staff.” customer, the company can engage customers when they are most ready toLeveraging technology to engage customers and prospects in a more accept the information that the company isintimate fashion to gain a deeper understanding of them is at the heart of offering.”creating great customer experiences. It takes both the aptitude and the — Paul Ernst, president, RiverPointsincerity of an organization to do it. And those who put in the time and Solutions Group, LLCeffort should find it worth their while.SECTION 4: IBM’S INTEGRATED SMARTER COMMERCE APPROACHIBM’s Smarter Commerce initiative is designed to help companies transform their businesses to provide thecompelling experience that smarter customers demand. IBM has invested more than $2.5 billion since 2010 inthe Smarter Commerce portfolio, which provides solutions across the commerce cycle (Figure 2). 7 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric WorldFigure 2: IBM’s Smarter Commerce PortfolioSource: IBMCustomer insight is at the heart of the Smarter Commerce portfolio, which encompasses IBM’s advancedanalytics solutions and its key business process solutions. Each solution helps businesses get the insight theyneed from customer conversations, input and experiences to optimize each phase of the commerce cycle:  Buy: Synchronize sourcing and procurement based on customer demand to optimize supplier interactions across extended value chains. This includes solutions for supplier integration and management, supply chain optimization, logistics management, and payments and settlements.  Market: Create targeted and personalized marketing campaigns, loyalty programs and brand experiences across different channels by gleaning and acting on insight from social networks, search optimization, advertising, etc.  Sell: Streamline and optimize sales and fulfillment across multiple sales channels, whether physical stores, ecommerce, mobile, etc., so that customers can purchase products and services, exchange information and collaborate with vendors and channel partners. 8 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric World  Service: Proactively provide service to customers across all touch points and interaction channels to increase customer satisfaction, repeat sales and loyalty.Many companies focus on the Market and Sell phases first because they help drive revenue. IBM’s keyofferings in these two areas include the following:  IBM Coremetrics solutions measure and improve the effectiveness of online marketing programs, and include solutions for search engine bid management, email targeting, ad impression attribution, cross-sell recommendations and social media ROI analysis.  IBM Unica solutions integrate and streamline all aspects of online and offline marketing, incorporating customer and web analytics, centralized decision management, cross-channel execution and integrated marketing operations.  IBM WebSphere Commerce enables companies to deliver a seamless, cross-channel buying experience through contextually relevant content, marketing and promotions that support all sales business models—including B2C, B2B and B2B2C—on a single customer interaction platform.These solutions help businesses maximize the insights that they generate through customer interactions,whether in a physical location (such as a store or branch office), over the web or from smart devices. With thisintelligence, businesses can do a better job of tailoring marketing and offerings to customer interests;improving profitability by targeting the right offerings to the right customer at the right time; and reducing thereturn costs, restocking expenses and supply chain expenses incurred by handling returns.For instance, CustomInk®, a custom t-shirt company founded in 2000, has grown to 300 employees. It offershundreds of t-shirt styles and colors, as well as sweats, koozies, jerseys and other customizable products. Thecompany has expanded beyond screen printing and embroidery to add a digital printing service allowingcustomers to design and order as few as one custom t-shirt at a time. CustomInk uses Coremetrics tocontinually improve the customer experience and grow the business in three key ways: 1. Dashboard for daily monitoring of key performance indicators (KPIs). CustomInk relies on Coremetrics to monitor a series of key metrics such as: What percentage of site visitors go to the Design Lab? How likely is a visitor to save a design? How do aesthetic changes improve conversion rates? These metrics help CustomInk determine what’s working and what isn’t. For instance, if the percentage of customers who save a design is low, it may be because something is broken and the customer can’t load the design. Or there may be an overload of visitors from unqualified sources. 2. Design Lab monitor. When a customer designs a t-shirt, CustomInk uses Coremetrics data to help it understand how people click around to design their shirts, providing the company with a better understanding of the engagement process and departure rates. The company evaluates the data from a statistical perspective, using basic standard deviation analysis. When things deviate beyond a certain 9 Copyright SMB Group, Inc. March 2012

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Smarter Commerce: Transforming for a Customer-Centric World number of standard deviations, the monitor turns bright red to indicate there may be a problem— allowing CustomInk to quickly determine what is happening and resolve the situation. 3. Pathing analysis. CustomInk monitors key paths through its site daily with Coremetrics TruePath. These insights help CustomInk determine where people “fall off” on different paths and then refine them to improve engagement and conversion. CustomInk can see when changes are beneficial, detrimental or neutral to customer behavior. For example, CustomInk has learned that small, aesthetic changes in color or type font, or changes in button styles or colors, can impact movement through the site and affect the drop-off rate.CustomInk also uses Coremetrics data for behavior-based segmentation.By analyzing criteria such as on what page customers enter the site;whether they come from a search engine, email or Facebook; whether “Midsize companies want the same agilitythey come from a mobile device or PC; and what tools they want to use to as bigger companies, but don’t have ITdesign their t-shirts, CustomInk can better understand different customer resources to manage it all. Unica givesrequirements and tailor paths accordingly. them an integrated, multi-channel platform, and RiverPoint supplies theIBM Business Partners help midsize companies get the most from Smarter solution expertise, the integration toCommerce solutions. RiverPoint Solutions Group, for example, helps its connect their offline and online presence toclients use Unica to get an integrated, 360-degree view of their customers give them a 360-degree of all the touchacross multiple channels: email marketing, the Web and social media. points with customers.”RiverPoint provides both technology implementation services and — Paul Ernst, president, RiverPointguidance to help clients streamline marketing operations. Taking Solutions Group, LLCadvantage of Unica’s implementation methodology, RiverPoint can speedtime to value and help clients become “self-sustainable” with provendocumentation, training and mentoring best practices.IBM provides both Unica and Coremetrics as cloud-based solutions, “Coremetrics plays a key role in all of ourenabling midsize businesses to reduce upfront capital costs and pay for measurements…about 30% of the time, wethese solutions via monthly, quarterly or annual subscriptions. IBM Global use it to monitor performance, about 20%Financing has also stepped up with a $1 billion lending program for SMBs of the time we use it to identify newthat buy or lease its technology, with financing rates as low as 0% over 12 opportunities, and the remainder of themonths for credit-qualified clients on purchases of as little as $5,000. time to measure the impact of changes we make.” — Rachel Jacobsen, marketing analytics manager, CustomInk 10 Copyright SMB Group, Inc. March 2012 10

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Smarter Commerce: Transforming for a Customer-Centric WorldSECTION 5: SUMMARY AND SMB GROUP PERSPECTIVEThe Internet truly did change everything in the world of commerce more than a decade ago. It created newonline channels for information gathering, product and service evaluation, selection and purchase—andcreated a mandate for businesses to develop and integrate ecommerce with their traditional brick-and-mortaroperations.Now, as adoption of newer social and mobile technologies explodes, another seismic shift of greaterproportions is under way—and businesses face a new, perhaps more transformational imperative. Thechanging dynamics necessitate that midsize businesses have a closer relationship to their customers—as wellas suppliers and partners—to get the insights needed to better anticipate and respond to requirements, andensure they deliver the right product or service at the right price, time and place.IBM and its Business Partners provide guidance and expertise to help midsize companies integrate and analyzedata across customer touch points, give the customer a more consistent experience across channels, and gainactionable metrics to continually refine and improve the commerce experience.Although IBM isn’t the only vendor to tout this type of approach, it is building a strong portfolio of solutionsand investing in its WebSphere Commerce platform to strengthen social, mobile and new analyticsfunctionality. And key acquisitions—such as Unica and Coremetrics—provide additional automation,personalization and analytics capabilities to the mix. As important, IBM’s Business Partner network, clouddelivery and financing options put many of these solutions firmly within the reach of midsize companies.In a very short time span, it has become a buyer’s world. Customers will continue to harness mobile, social andcloud computing—and businesses must do the same. Companies that use solutions such as those provided inIBM’s Smarter Commerce initiative can lay a strong foundation and put the right processes in place to makethese disruptions work for instead of against them. 11 Copyright SMB Group, Inc. March 2012 11

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Smarter Commerce: Transforming for a Customer-Centric WorldSMB GROUP , INC.The SMB Group focuses exclusively on researching and analyzing the highly fragmented “SMB market”—whichis comprised of many smaller, more discrete markets. Within the SMB market, SMB Group areas of focusinclude: Emerging Technologies, Cloud Computing, Managed Services, Business and Marketing Applications,Collaboration and Social Media Solutions, IT Infrastructure Management and Services and Green IT. Read our2012 Top Ten SMB Predictions for our views on game-changers in these and other areas of the SMB market.Trademark information: trademarked terms are marked on their first occurrence in this paper with atrademark symbol (® or ™)IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Business MachinesCorporation in the United States, other countries, or both. If these and other IBM trademarked terms aremarked on their first occurrence in this information with a trademark symbol (® or ™), these symbols indicateU.S. registered or common law trademarks owned by IBM at the time this information was published. Suchtrademarks may also be registered or common law trademarks in other countries. A current list of IBMtrademarks is available on the Web at “Copyright and trademark information” atibm.com/legal/copytrade.shtml. Other company, product and service names may be trademarks or servicemarks of others.Speedo® and are registered trademarks of and used under license from Speedo International Limited.CustomInk is a registered trademark of CustomInk LLC. 12 Copyright SMB Group, Inc. March 2012 12